ConocoPhillips trims 2007 capital spending

Major acquisitions behind it, company opts for caution

By

JasminaKelemen

HOUSTON (MarketWatch) - ConocoPhillips, its bigger stake in Russia's Lukoil now paid for, said Thursday it plans to trim its capital spending in 2007 to $11.8 billion, about a third less than it spent this year.

At the same time, the company said the drop reflects a need to be more cautious to avoid paying top-dollar for services and resources in a period of sharply higher costs driven by soaring global energy demand.

"Given the increasingly challenging business environment, which has been marked by rising costs, greater discipline in capital spending is warranted to better ensure value delivery over the long term. Accordingly, we have prioritized our capital projects for 2007," Jim Mulva, chairman and chief executive officer, said in a statement.

The reduction in the 2007 capital program versus 2006 primarily reflects the company's completion of its planned 20% equity investment in Lukoil, Mulva said.

The Houston-based oil company said it has earmarked another $1.7 billion to cover loans, transactions and interest, bringing the company's estimated overall capital outlay next year to $13.5 billion.

In 2006, ConocoPhillips'
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capital spending is expected to reach $18 billion. The amount includes the remaining costs associated with its Burlington Resources purchase, upgrades to its big Wilhelmshaven refinery in Germany, and loans to affiliates.

About 84% of the 2007 budget, or $10.2 billion, will go towards exploration and production, also known as the upstream side of the business. Of this, $6.5 billion will focus on development projects in North and South America, including ongoing projects in Canadian natural gas and heavy oil projects and the further development of fields on Alaska's North Slope and Prudhoe Bay.

In South America, the company's primary focus will be on the development of the Corocoro field off the coast of Venezuela.

ConocoPhillips improving refineries

ConocoPhillips has allocated $1.7 billion to downstream, or refining and marketing operations, the bulk of which will go to U.S. businesses.

About $1.1 billion of that budget will be spent on the company's U.S. refineries, the company said.

The nation's third-largest oil company has a number of projects to increase crude oil capacity at their domestic refineries and improve their ability to convert heavy, sulfurous crudes to light products such as gasoline and diesel.

Following its recently announced partnership with Calgary-based Encana Corp.
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ConocoPhillips has committed to spending billions over the next several years to refurbish their refineries in order to process the thick, tar-like sludge coming out of Canada's oil sands in northern Alberta.

Earlier this month, ConocoPhillips said it's preparing to spend hundreds of millions of dollars to retrofit its Billings, Montana and similar work is expected at refineries in Wood River, Illinois and Borger, Texas.

The company is also considering several international refinery projects, such as building a brand new, 400,000 barrel-a-day refinery in Yanbu, Saudi Arabia.

However, higher capital costs for oil projects have forced the company to reconsider which projects will actually make it off the drawing board.

"We're not canceling any projects," said spokeswoman Becky Johnson. "But in some cases we are extending the time frame over which they will be studied and developed," she said.

Johnson would not spell out the queue for upcoming projects, saying the company will specify its plans to the investment community next March.

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